Bank of Canada launches consultation on government debt strategy

Amid a massive increase in government borrowing due to the effects of Covid-19 on the economy, the Bank of Canada and the Department of Finance are preparing to undertake consultations on the government’s strategy for managing an inflated debt load.

In consultations that will begin this fall, policymakers are seeking feedback from government securities dealers, institutional investors and others on the design and operation of the federal government’s domestic debt program for the coming years.

“In the context of Covid-19, the fundamental objectives of debt management remain to raise stable and low-cost funding to meet the financial needs of the government of Canada and to maintain a well-functioning market for government of Canada securities,” said a consultation paper.

The government has also added a new objective to “issue a historic level of long-term bonds,” enabling it to lock in historically low interest rates amid the surge in debt due to Covid-19.

“Given where interest rates are, it’s tough to argue against issuing ultra-long bonds,” said BMO Capital Markets in a research note, adding that some European countries, “have seen extremely strong demand and performance” from 100-year bonds.

The government has already increased issuance at the longer end of the curve this year, BMO said, but added that it believes “more can be done on this front at these abnormally low long-term borrowing costs.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.